Letter of Explanation for Large Deposit — Free Template
Lenders need to know that the money for your down payment and closing costs is yours and not borrowed. When a large or unusual deposit appears on your bank statements, they'll ask where it came from. This version is set up to source a large deposit with dates, amounts and proof.
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Free to preview[Your full name (as on the application)]
[Your current address]
October 15, 2026
[Lender or underwriter]
Re: Letter of explanation — a large deposit in my bank account
Dear [Lender or underwriter],
Thank you for reviewing my application. As requested, I am writing to explain a large deposit in my bank account.
[Your explanation]
[Current status and why it won't affect the loan]
I confirm that the information in this letter is true and complete to the best of my knowledge. Please let me know if you need anything else to complete your review.
Sincerely,
[Your full name (as on the application)]
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Name the source and prove it
Underwriters call this sourcing a deposit. For each deposit they flag, give the date, the exact amount, the account it went into and where the money came from: the sale of a car or other item, a tax refund, a bonus, a transfer from your own savings, an insurance payout or a gift. Then attach a document that matches, such as a bill of sale, a refund notice, a pay stub showing the bonus or a statement from the other account.
If the money moved from one of your own accounts, provide statements for that account too, showing the funds leaving it. Lenders want to follow money from its original source to your account.
Gifts and cash need special handling
If a relative gave you money toward the purchase, a letter of explanation usually isn't enough. Most lenders require a signed gift letter from the donor stating the amount, their relationship to you and that no repayment is expected, plus proof of the transfer. Ask your loan officer for the lender's gift letter form.
Cash deposits are harder to document because there's no paper trail. If you deposited cash from savings at home or from a side job, explain it honestly, but expect that the lender may not be able to count those funds. Depositing cash shortly before applying for a mortgage often creates more problems than it solves.
What to do, step by step
Read the underwriter's request closely
Lenders usually list exactly what they want explained, such as specific inquiries, deposits or dates. Answer each item they named, in the order they listed them.
Gather supporting documents
Back up your explanation with paperwork where you can: a bill of sale, a gift letter, an offer letter, a payoff statement or a hospital bill. Underwriters can't approve on your word alone.
Fill in your letter
Answer the questions above. Keep it short and factual: what happened, when, whether it's resolved and why it won't affect your ability to repay.
Sign, date and send it back
Sign and date the letter, add every borrower's signature if the item concerns both of you, and upload it through your lender's portal or send it to your loan officer.
Respond quickly to follow-ups
Underwriters sometimes ask a second question after reading your letter. Answer promptly to keep your closing on schedule.
What if the underwriter isn't satisfied with your explanation?
A letter of explanation is a routine part of underwriting, not a sign that your loan is in trouble. If the underwriter needs more, they'll usually ask a follow-up question or request a specific document. Answer the new request directly rather than rewriting your whole letter.
If the item reveals something that changes your loan, such as a new debt from a credit inquiry or a deposit that turns out to be borrowed, the lender may recalculate your debt-to-income ratio or ask for more documentation. Being upfront from the start avoids surprises at closing.
If your loan is denied, ask your loan officer for the specific reason. Sometimes a different loan program, a larger down payment or waiting a few months to add more history solves the problem. Never change facts to fit the lender's requirements; misstatements on a mortgage application can have serious consequences.
Example letter of explanation for large deposit
A filled-in sample with made-up details, so you can see the finished result.
Priya Raman
2215 Juniper St, Apt 4B, Denver, CO 80205
October 5, 2026
Front Range Home Loans Underwriting
Re: Letter of explanation — a large deposit in my bank account
Loan or application number: Application 2026-48817
Dear Front Range Home Loans Underwriting,
Thank you for reviewing my application. As requested, I am writing to explain a large deposit in my bank account.
The item in question: a deposit of $6,500 on August 22, 2026 into my checking account ending in 1184.
This deposit was the proceeds from selling my 2017 Honda Civic to a private buyer, Marcus Lee, after I bought a newer car with cash savings earlier that month. He paid by cashier's check, which I deposited the same day.
The funds came from the sale of an asset I owned outright. They are not a loan, no one expects them to be repaid, and they have not been used to take on any new debt.
I have enclosed the following documents to support this explanation: the signed bill of sale, the title transfer record and a copy of the cashier's check.
I confirm that the information in this letter is true and complete to the best of my knowledge. Please let me know if you need anything else to complete your review.
Sincerely,
Priya Raman
Frequently asked questions
What counts as a large deposit?
There's no single number. Lenders typically flag any deposit that isn't your regular paycheck and is large relative to your income, along with deposits that don't match your usual pattern. If your loan officer flagged it, explain it, even if it seems minor to you.
Can borrowed money be used for a down payment?
Generally not without disclosure. Borrowed funds add to your debts and must be reported to the lender, and some programs don't allow them at all. Never describe a loan as a gift or a sale; misstating the source of funds on a mortgage application can have serious consequences.
What if I can't document where a deposit came from?
Tell your loan officer. The lender may simply exclude those funds from your available assets. If you have enough other documented funds for the down payment and reserves, the undocumented deposit may not matter to your approval.
What is a letter of explanation?
A letter of explanation, often shortened to LOE or LOX, is a short written statement a lender asks for when something in your application needs context, such as credit inquiries, late payments, a large deposit, a job gap or a change of address. The underwriter adds it to your loan file.
How long should a letter of explanation be?
Usually a few short paragraphs. Answer exactly what the underwriter asked, give dates and amounts, say whether the issue is resolved and attach proof. Extra detail can raise new questions, so stay on topic.
FairLetter is not a law firm and does not provide legal advice. Letters are templates you customize and send yourself.